The lies about renewable energy's cost

The Abbott government is conducting a review of Australia's Renewable Energy Target, which is for 20% of projected energy generation to be from renewable sources by 2020.

Recent commentary has focused on the scandalous appointment of prominent climate change deniers and fossil fuel industry heavies making the review panel look more like a lynch mob for renewable energy. Dick Warburton, who will head the review, is on the public record denying climate science.

Underlying such scandalous appointments, however, is something simpler and less absurd than flat-earth climate change denial. The big energy generators – private and state entities, who run the big power stations – are finding their profits squeezed by the growth in renewable energy.

Last August, the head of the giant generator and retailer AGL, Michael Fraser claimed that there was around 9000 megawatts of oversupply in the national electricity generation sector. That is more than the entire generation capacity of Victoria, almost a third of the national baseload generation capacity.

Fraser made the comments in relation to constructing a solar power station in western NSW. RenewEconomy reported that to agree to proceed, "AGL Energy sought extra funding from the Australian Renewable Energy Agency to make up for equivalent estimated falls in wholesale electricity prices."[1]

Adding extra capacity when there is already overcapacity drags down the wholesale price. The Renewable Energy Target (RET) mandates that by 2020, 41000 gigawatt-hours of electricity must be generated by renewables. In order to meet this target, extra renewable energy generators have to be built.

That's why big generators and business associations have been calling for the Renewable Energy Target to be lowered, delayed, or both − it is making their existing investments less profitable.

Australian Chamber of Commerce and Industry economist Burchell Wilson told the ABC 7:30 report that the Renewable Energy Target "is high-cost, it's inefficient as a means of abating carbon" and that "we should scrap it altogether".[2]

In fact, the RET has been the most effective driver of abating carbon: without it, all those gigawatts would be coming from burning coal and gas, generating a lot more pollution, with or without the carbon price.

But on one point, Wilson is partially correct. The RET is "high-cost" – but only if you own a big fossil fuel power station.

Of course, household electricity consumers have seen massive rises in electricity bills in recent years. That's why conservatives like Abbott and Wilson talk about "high costs" in the hope of gaining their audience's sympathy. Prime Minister Tony Abbott, speaking with radio shock-jock Alan Jones about renewable energy, said that "if it goes too far it becomes very, very costly."

If the economics were as simple as they make out, politicians would never get away with lying. Common wisdom has it that you can tell when politicians are lying because their lips are moving. So we need to look at the facts, not just the words that come out when Abbott's lips move.

The RET has not been a significant cost to household energy prices. As Melbourne University researcher Dylan McConnell explains, "According to the last national review of the Renewable Energy Target, $15 a year from now to 2031 is all that an average Australian household would save" if the RET were scrapped.[3]

What's really driven up electricity prices, if not climate action? It can seem complicated, because the electricity markets have been set up with a complicated structure, but the main cost is quite simple: the distribution network (power lines and substations) has been heavily upgraded to cater to rising peak power use.

That peak power use is in turn driven by such things as the massive increase in air-conditioning over the past 10 years. Instead of investment going into government programs that reduce demand and peak demand (like the abandoned Home Insulation Program), big energy corporations (and state government bodies) have invested in upgrading the distribution network to accommodate growing peak demand. And why wouldn't they, when peak demand is such a money-spinner for them?

As well as insulation, rooftop solar panels massively reduce the super-profits that power generators receive when demand peaks: houses are drawing power from their solar panels, instead of buying at high peak prices from the grid.

Solving this problem for the big electricity generators means scrapping the RET. It might also mean seeking big handouts to close down some large coal power stations. While the latter may sound partly good, its only significant effect would be to make the remaining coal generators more profitable, as there will be less of them competing to supply the market with the same amount of coal power.

For ordinary households, who do not care so much about share prices in coal power generation, high pollution is a concern as well as high bills. Renewable energy remains very popular, despite years of efforts to paint it as inefficient and expensive. Energy efficiency is gaining in popularity too.

To act to stop climate change, a revolution in our energy supply is unavoidable. And there is no such thing as a "win-win" revolution: the old industry must lose out to make way for the new.

Those who want more renewable energy have to challenge the foundation of the current system: a market in electricity, that rewards those who sell a lot of it, not those who conserve energy; a market that gives great power to large, incumbent businesses with near-monopoly control, against dispersed, less concentrated renewable energy generation.

The appointments to the RET review panel confirm that the narrow, short-term, and unscientific interests of fossil fuel investments are being put ahead of a scientific approach to energy security and environmental protection. All there is to sweeten it is a fresh brace of politicians' lies about keeping costs down for families.

When you look at it that way, the attack on renewable energy is by no means guaranteed to succeed – if the truth gets out.